Here's Why Facebook Works For Advertisers

AP ImagesFacebook registered for an IPO by completing an S-1 form yesterday. Rather than focus on the positives that were disclosed, many pundits have have chosen to focus on the risk factors and disparage Facebook.

They should know that "risk factors" are an essential part of any marketing or business plan, and certainly a prerequisite for an IPO filing.

Without a "bad news," "limiting factors," or "risk factors" section, the smart money people will throw the plan in the trash or discount the IPO. Why? Disclosing potential limiting factors typically does the following:

Failure to disclose the risks and difficulties of creating a successful company is what scares the smart money people the most. They have seen too many companies fail because their founders thought they would take over the world by building a better mousetrap.

As Charles Darwin is credited with saying, "Building a better mousetrap merely results in smarter mice." Andy Grove, co-founder and former CEO of Intel even wrote a book on this subject entitled Only the Paranoid Survive.

The fact that the risk factors section of the Facebook IPO filing is so comprehensive is a very good sign. It is one reason of many reasons why Facebook will continue to win, and win big. What are the others?

Huge and growing increasingly-engaged audience

Facebook currently has 845 million users - that's 45 million more than reported in September. The only places with more people are the countries of China and India. By any standards, that is a huge audience. In an era when most media markets are fractured into tiny pieces, advertisers are naturally attracted to any place that can deliver such a large potential audience - especially when this audience is as highly engaged as it is on Facebook.

Better targeting with viral potential

Because Facebook has more information on its users than other social media, advertisers can more effectively target the audience that is most likely to buy their products. Moreover, users can (and often do) virally share information with their friends. This means that advertisers can potentially reach many more people that are already favorably inclined to buy advertised products because friends have recommended them.

Yes, privacy issues are one of the stated risk factors, but all Internet and social media companies are struggling with the balance of giving their users a better experience while maintaining the privacy users want. As users, we all have unrealistic demands. In fact, the less we pay for something, the more demanding we are. This is why both Google and Facebook have caused the ire of users over privacy.

Talented people

In talking with the people that joined Facebook after working with other tech companies, they typically say that Facebook has the smartest, most talented people with which they have ever worked. They also claim that the company has the best internally-created business systems they have ever seen. With all the excitement over the IPO and the ever-increasing opportunities for monetizing its huge audience, Facebook is likely to continue to attract the top talent from around the world.

Track record of winning

Mark Zuckerberg and the other executives at Facebook have a track record of winning. Ask the Winklevoss twins and their Harvard classmate Divya Narendra who have lost every court battle with Facebook and its CEO. In the latest battle decided in April of 2011, a three-judge appellate court panel upheld a 2008 deal between the trio and Facebook founder Mark Zuckerberg. The Winkelvii and their friend will have to settle for a share of Facebook now estimated to be worth $225 to 300 million.

Credibility and Image

Even though some believe the movie Social Network portrays him in a negative light, most seem to have great admiration for Mark Zuckerberg and his accomplishments at Facebook. Those that know him say he has never been about making money. He dresses and lives modestly, and people that work with him say he is brilliant. He has already pledged $100 million to Newark schools (some view this cynically), and he is one of only 17 Americans (or families) that has pledged most of his wealth to charity. This has given him a largely positive public image.

The IPO is expected to make him worth roughly $28.4 billion at the "ripe old age" of 27, which will make him richer than Google's founders and approach the net worth of Larry Ellison who founded Oracle 35 years ago. That is quite an accomplishment for a young man that can boost his stature even higher as he and Facebook mature.

While many naysayers seem to be reacting either negatively or skeptically to the IPO filing, the track record of Mark Zuckerberg and Facebook indicates that his cup will be half full instead of half empty, and in fact, it may runneth over once Facebook gets its business model honed. After all, not very long after Mr. Zukerberg started the business in his dorm room at Harvard the company has generated $1 billion in profit on $3.7 in revenue.